Accrual of statutory interest on land acquisition compensation is year-wise, so only the relevant year's proportion is taxable.

Statutory interest under section 34 of the Land Acquisition Act is a separate right from compensation and accrues from the date of dispossession until compensation is paid or deposited. Because income-tax charges income on accrual, not merely on receipt, such interest is attributable to successive years during which the landowner is kept out of the money. The later quantification and payment of the total amount do not defer accrual to the receipt year. Accordingly, only the proportionate interest referable to the relevant previous year is taxable in that year.

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Issues: Whether interest payable under section 34 of the Land Acquisition Act on compensation for acquired land accrued year by year so that only the proportionate amount relatable to the relevant previous year could be assessed to tax in the year of receipt, or whether the entire amount received on payment was taxable in that year.

Analysis: The right to interest under section 34 is a statutory right distinct from the compensation itself and arises from the date of dispossession, with the liability to pay interest continuing until compensation is paid or deposited. Income under the Income-tax Act is taxable when it accrues, and accrual depends on the existence of a present enforceable right to receive the amount. In the case of statutory interest on delayed compensation, the amount is attributable to successive years during which the assessee was kept out of the use of the money, and the fact that the total amount is quantified and paid later does not make the whole sum accrue only on the date of receipt. The principle of accrual, rather than mere actual receipt, therefore governs the chargeability of such interest.

Conclusion: The interest accrued year by year, and only the proportionate amount referable to the relevant assessment year was taxable in that year. The answer is in favour of the assessee.

Ratio Decidendi: Statutory interest under section 34 of the Land Acquisition Act accrues from year to year after dispossession, and for income-tax purposes only the amount that has accrued in the relevant previous year can be assessed in that year.

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